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Czechia: An Important Gateway to EU Market

Highlights
CapitalPrague
Population10.6 million
CurrencyCzech koruna (1 CZK = 0.0454 USD or 0.0390 EUR as of 31 October 2017)
Official languageCzech
Form of governmentParliamentary republic

 

Major Exports (% of total, 2015*)Major Imports (% of total, 2015*)
Manufactured goods (88.4%)Manufactured goods (82.3%)
Agricultural products (6.3%)Fuels and mining products (10.0%)
Fuels and mining products (4.6%)Agricultural products (7.4%)
Top Three Export Markets (% of total, 2016)Top Three Import Markets (% of total, 2016)
European Union (83.7%)European Union (67.3%)
USA (2.2%)China (12.7%)
Russia (1.9%)South Korea (2.5%)

* Most recent year for which data are available
Source: World Trade Organisation

Political Highlights

Czechia is a parliamentary republic. It is one of the most stable and prosperous markets in Central Europe. The President is the head of state while the Prime Minister is the head of government. In the parliamentary elections held in October 2017, ANO, an “anti-establishment” party, collected a share of almost 30% of the vote, nearly three times that of its closest rival, the centre-right Civic Democratic Party. Two other anti-establishment groups, the Pirate party and the far-right SPD, claimed third and fourth place, respectively. Amid a wave of successes for European populists and the refugee crisis in Europe, the ruling centre-left Social Democrats (CSSD) saw its share of the vote tumble to become the sixth-largest party, even though the election took place against the backdrop of a growing economy which boasted the lowest unemployment rate in the EU.

The President Andrej Babis pledged to boost investment, fight corruption and keep out refugees. Czechia joined the EU in 2004, but the EU’s mandatory refugee quota system increased Euroscepticism and anti-immigration sentiment in the country. While Babis was sharply critical of the EU’s migrant policies, he said that the country should still stay in the EU.

Economic Trend

Economic Indicators2014
2015
2016
2017*
2018^
Nominal GDP (US$ bn)207.8186.9195.2214.5236.4
Real GDP growth (%)2.75.42.54.52.9
GDP per capita (US$)19,60017,63018,40020,20022,250
Inflation (%)0.30.30.72.42.0
Budget balance (% of GDP)-1.9-0.60.6-0.1-0.3
Current account balance (% of GDP)0.20.21.10.90.6
Public debt (% of GDP)42.239.936.835.033.9
External debt (% of GDP)63.0*69.1*70.7*68.866.2

* Estimates ^ Forecasts
Source: Economist Intelligence Unit (www.eiu.com)

Czechia has a highly-open economy with exports accounting for roughly 80% of GDP. Emerging as an important gateway to the EU market, it has one of the most skilled workforces and the best infrastructures in the region. It plays an important role in the Germany-Central European supply chain. Manufacturing is a major economic activity, especially on automobiles, machine tools, and engineering products that successfully attracts foreign direct investment (FDI). GDP in 2017 is forecast to grow by 4.5%, up from the 2.5% growth in 2016, largely driven by domestic demand.

Due to strong capital inflows and low inflation, the central bank had previously committed to intervene in the foreign exchange market. Keeping the currency relatively weak helped to push up import prices and fuel inflation. On euro accession, the country does not have a target date to adopt the euro, and public support for the euro is low.

GDP per capita at purchasing power parity in Czechia was 88% of the EU average in 2016, which is high by regional standards. Czechia is an export-oriented country with exports of over 80% to EU countries, which remains sensitive to changes in the economic performance of the EU. In the meantime, the country has an ageing population. The labour force is projected to decline gradually which places pressures on public finances in the longer-term.

Chart: Hong Kong total exports to Czechia
Chart: Hong Kong total exports to Czechia

Hong Kong-Czechia Trade

Total exports from Hong Kong to Czechia decreased by 19.2% from HK$6,927 million in 2015 to HK$5,595 million in 2016. The top three export categories to Czechia were: (1) telecommunications, audio & video equipment (-26.9%), (2) electrical machinery, apparatus & appliances, & parts (-13.1%), and (3) office machines & computers (+14.3%), which represented 80.7% of total exports to Czechia.

HKECIC Underwriting Experience

HKECIC imposes no restrictions on covering Czech buyers. The Corporation’s underwriting experience on Czechia has been satisfactory, with two claim payment cases of small amount reported during the past 12 months (from October 2016 to September 2017), involving jewellery and electronics.

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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